Fortnite, Rappers and the Billion-Dollar Pandemic Gaming Boom

Pandemic Brings Gaming Boom That Adds Billions to Makers’ Wealth

(Bloomberg) -- Rapper Travis Scott zoomed onto stage riding an asteroid during a concert witnessed last month by British YouTube videographer Jon Hutchinson. The special effects were vivid, the set constantly changing, the venue intimate.

“One of the coolest events yet,” Hutchinson said on Twitter. “Absolutely unreal.”

If you’re thinking a concert in the middle of a pandemic-induced global lockdown is reckless, you’re right and it is. This concert, however, was hosted virtually by mega-hit video game Fortnite.

Fortnite, Rappers and the Billion-Dollar Pandemic Gaming Boom

A smash success since its release in 2017, Fortnite’s popularity has again exploded as people flock to video games amid the tedium and isolation of Covid-19 quarantines. Concerts are just one example of how Fortnite creator Tim Sweeney has redefined gaming as an immersive, social experience. His efforts have diversified revenue at his Cary, North Carolina-based developer, Epic Games, boosting his net worth to $9.6 billion, according to the Bloomberg Billionaires Index.

The company has held talks to raise a new round of funding, valuing it above its last valuation of $15 billion, Bloomberg reported last month.

Sweeney is just one of a few video-game titans benefiting from a warp-speed renaissance moment brought about by lockdowns and shutdowns. Not only have gamers had more time to lavish on their hobby, fans of traditional sports have increasingly turned to their virtual equivalent to slake competitive thirsts.

“With people sheltered in place around the world, gaming is one of the few options available,” said Carter Rogers, an analyst at research firm SuperData.

Digital Distribution

And that’s being reflected in sales. U.S. consumer spending on video games jumped to a record $10.9 billion in the first quarter, up 9% from a year earlier, research firm NPD Group said in a report released Friday.

Anticipation over the launch of Cyberpunk 2077, a futuristic role-playing game starring Keanu Reeves, has propelled the fortunes of the co-founders of Polish game developer CD Projekt. The stock has surged about 75% since mid-March, giving high school friends Marcin Iwinski and Michal Kicinski net worths of $1.1 billion and $970 million, respectively. The company only distributes games digitally, which has proven to be an advantage over some rivals.

Pony Ma, co-founder and chief executive officer of China’s Tencent Holdings Ltd., is one of the biggest gainers on the wealth index this year, up $4.4 billion. The company’s online gaming sales soared 31% in the first quarter even as China’s economy contracted at a record pace. Tencent, the world’s largest game publisher, has more than 100 titles, including League of Legends and Honor of Kings. It also owns a stake in Sweeney’s Epic.

Kim Jung-Ju, the Korean founder of Tokyo-listed gaming company Nexon Co., has seen his fortune jump by almost 40% this year to $6.9 billion. Nexon pioneered the “freemium” business model, where players get free access to games but pay for virtual extras. That strategy was also adopted with success by Fortnite.

No-cost games have helped lure newcomers. In ordinary times, the volume of players is a key factor in driving a game’s revenue. SuperData estimates that Fortnite generated $1.8 billion last year from players buying its virtual currency to spend on things like costumes and dances. Fortnite has more than 350 million users, the company said in a statement this month.

Arrogance, Humility

With a recession deepening, it’s unclear whether new players will make up for a decline in in-game expenditures.

For Sweeney, any drop in Fortnite purchases will likely be overshadowed by the broader success of the Epic empire, which is coalescing around his vision of gaming as a unifying and communal activity. That mission has been bolstered by the success of HouseParty, a group video-chatting app Epic acquired whose popularity has skyrocketed during the pandemic.

He’s also upending the industry through the Epic Games Store, an online marketplace that Sweeney started to compete with dominant seller, Steam. Epic has won favor from developers for charging less than half the commission of Steam for titles published through their site and enticed gamers with regular free downloads. Last week, the offering of free copies of Grand Theft Auto V proved so popular it crashed the website.

Sweeney has excelled at understanding the social significance of games, according to Joost van Dreunen, an investor and professor of the business of video games at New York University.

The company’s ethos “is an interesting mix of arrogance and humility,” he said. “It’s what you’d expect from Sweeney. He started this company from his parent’s basement, the man has never had a reasonable job. He just thinks, ‘We’ll eat the world no problem.’ To dream that big you have to have guts.”

©2020 Bloomberg L.P.